Chapter 8, Problem 7Q

To determine

Suppose you have data about two groups of countries, one with efficient legal systems, and the other slow, costly, and inefficient legal systems. Which group of countries would you expect to exhibit higher living standards?

Concept Introduction:

The living standards in a financial system are measured through many factors such as per capita income, gross domestic product, economic growth, political stability, political and religious freedom, etc. However, the most important of these factors is economic growth & stability, that raises the living standards. For the economy to carry efficiently, they must overcome many problems of asymmetric information, adverse selection, and moral hazard which can be taken care of by the regulatory agencies and government’s regulations of collateral and restrictive covenants.